Monthly Archives: October 2010

Why do we think that we should be able to “invest” money and get more money back than we supplied?

Let’s take a look at money.

Money is the tool we use to manage wealth. Wealth is the stuff that has intrinsic value for us because it meets a need or desire: air, water, food, shelter, clothing, heath, companionship, meaningful occupation, aesthetic satisfaction.

So, money is not, in itself, what we need or want. Money is what we use to get what we need and want. At it’s foundation, money gets its value from the wealth it represents. For instance, the value of the amount of money it costs to buy a meal is the value of that meal.

For money to have value, it must be linked to something of intrinsic value: wealth.

Let’s take a look at lending and investing.

In general terms, a loan is an arrangement whereby one person (or company) supplies money to another, under specific terms that require the repayment of the money plus some more (interest) over a specific period of time. In most cases there is “collateral”, i.e. something that is worth the amount of the loan that can be seized and sold to pay for the debt if the borrower does not pay as required.

An investment is an arrangement whereby a person (or company) – the “investor” – supplies money to another for a speculative venture. If the venture is profitable, some portion of the profits from the venture is returned to the provider of the “investment money”. If the venture is not profitable, the investor may receive some money back or none at all.

So, what is the basis for the idea that simply by providing money to someone else we should receive back more money than we provided? Getting more money in return would imply that more wealth was created, or that the person we provided the money to has given up some of the wealth that they already had.

In some cases the person we supplied the money to might use it to increase wealth – for example, a chair maker might use the money to buy a new tool that allows her to produce more chairs in the same amount of time. This means she can sell more chairs, and increase her income. For that she is willing to give us some of the increased income.

Note that the money did not increase wealth.

The chair maker, using raw materials, the tool she is able to get with the money we loan her (invest), and her labor, can create new wealth. We get more money back than we provide because she is successful in increasing wealth, and she shares her increased income with us.

But if she is not able to increase her production of chairs, she does not increase wealth. In that case, why would we get back more money than we “invested?”

If it was a loan, we can force her to pay us anyway, either by giving up some of her income or seizing the collateral and selling it. So, we have increased our wealth by taking wealth from someone else. For us, it was a secured extraction of existing wealth from someone else. For the chairmaker, is was simply gambling.

If it was an investment, we may be able to recover some of our investment by selling the tool the chair maker bought, but we will probably lose at least some of our original investment and all of our profit. For both the investor and the chairmaker it was a gamble, and we both lost.

In none of the instances above did our money “make” money.

Even in the instance when we were successful, and received more money back than we invested, it was the efforts of a person, combined with raw materials and tools, which increased wealth, and therefore “made” money.

We are constantly replacing our body cells. By the time three and a half years have passed, we have replaced virtually all the cells in our bodies.

We make those new cells from what we eat, what we drink, and what we breathe.

Our life cycles are intimately intertwined with the earth. We eat plants, or animals that eat plants, or animals that eat animals that eat plants, and the plants get their nutrients from the soil. We drink water that has been filtered by passing through the soil. The air we breathe is purified by passing through plants and the soil.

When we die, our bodies return to the soil to provide nutrients for future generations.

From dust we come and to dust we shall return.

Of course, we know that our air is polluted with industrial wastes and car exhaust, our water is contaminated with agricultural chemicals and more industrial wastes, and our food, which lacks nutrition, is contaminated with poisons and human-made genetic materials.

Is it any wonder that we are increasingly diseased and overweight? Is it surprising that infant mortality in he United States is growing, or that life expectancy is dropping?

And yet we steadfastly refuse to face the reality that the ways we manage food, water and air are killing us, and making life less pleasurable in the process.

We keep on eating at fast-food restaurants while driving to and from work, buying non-repairable, non-reusable consumer goods in way too much packaging, and then throwing the product and the packaging “away” when we are done with them, all the while refusing to recognize that there is no “away”.

I am married to an intelligent woman. She is a classic Mid-West sensible person, who has few illusions about the realities of living. That is, death is not a whether question, it is a when question, and sometimes a how question.

She is also overweight, as am I (and a number of other people in this country.)

For some time we have been trying to find a way for regular exercise to become part of our daily routine. Last week she went to a women-only fitness center. The organization is supportive of women’s health, and offered to waive her enrollment fee if she got a mammogram, which was available free of charge.

Her response to the offer of a free mammogram was quintessentially Mid-West: “Why would I want to get a mammogram? If I get a mammogram one of two things will happen.

Either they will find nothing, in which case I will need to do nothing, just like I am doing nothing now. Or, they will find something. I have no health insurance. I would not be able to do anything about it. Which is what I am doing now, but without the fear, worry or guilt.

Why would I want to get a mammogram?”

It seems that there are a number of people who really don’t understand what it is like not to have health care available, either because of low income, uninsurability, inadequate health insurance, or lack of accessible health care facilities.

It reminds me of the people who do not understand that many of us often experience more month than money, because of unemployment, low pay, unavoidable expenses, or physical or mental challenges.

And these seem to be the same people, including most politicians and large political donors, who shape our laws and government programs.

We live in the land of the free and the home of the brave. That is to say, millions of people are bravely facing modern life in the United States free of health care or living wage jobs.

So, now corporations are people, with all the rights of people. What about the responsibilities of people?

If I were to hire a hit man to kill, say, half a dozen random folks across the country, I would probably be branded a terrorist. If I were caught, at the very least, I would be tried for murder.

But if I buy stock in a corporation that is responsible for the deaths of thousands, no one would consider me a murderer. Even though I provided the money necessary to get the job done.

Logically, if a corporation decides to market a product that they know will lead to the death of people, or to continue to market a defective product that is killing people, then the murders (if we were to admit that that is what they were) would be the responsibility of the corporation, or perhaps of the management of the corporation.

But they are not.

So long as the deaths of those people maximizes the return on investment for the stockholders, from a practical standpoint, any action by the corporation is permitted. Oh, there may be a civil suit and compensation paid the the survivors, or a civil fine to pay for breaking some law, but where is the criminal indictment? The trial?

Rarely, the corporate decision makers are held criminally liable for their actions – when they cannot be shielded by the “maximizing profits” excuse. The corporation itself is never indicted and tried.

This this mystery and magic of corporations:

The mystery is:
Who is this mythical person who is the corporation?
How does the corporation make decisions? (That is, not a decision of the board members, or the executives, or the staff, but of the corporation?)
Why don’t we hold corporations criminally accountable (in contrast to the board members, or executives, or staff?)

The magic is – corporations are not held responsible for what they do.

So they have the rights of persons, but not the responsibilities of person.

Pretty convenient for the corporations, no? What is that phrase, “equality before the law?”

We are limited in our thinking by the information we have, our imagination, and our understanding of how the world is.

Western science limits our vision with its basic tenets: the physical world exhibits cause and effect, time flows in one direction, if we influence the causes we can influence the effects, it is possible to understand enough to cause things we desire to happen, and to prevent things we do not.

These are all, of course, aids to understanding, but limits to thinking.

The story is told of a time in the misty past when a man was walking around, and he found himself at the top of a tall mountain. He noticed that he could see an equal distance in all directions, and reasoned that he was at the center of the universe, and standing on the sacred mountain.

Sometime later this same man was again on top of a tall mountain, although a different one. He again noticed that he could see an equal distance in all directions. He reasoned that he was again at the center of the universe, although this was not the same place as before. His reasoning then made it clear that he was the only commonality between the two places, so he must be the center of the universe.

Since the universe must be centered on something pretty important, he must be the most important thing there was. By extension, those closest to him were more important than those farther away – i.e. me and mine are more important (better) that you and yours.

This is flawless reasoning, but it is sort of silly, when you look at it this clearly, and most of us can point out at least a few of the myriad flaws. That doesn’t mean that it is not embedded in our worldview –in fact, it is the basis for most of Western culture.

Nevertheless, it is a classic example of how our vision and understanding are limited by the information we have (and the information we don’t have), our imagination, and our understanding of how the world is.

This way lays hubris, and we are there. The real tragedy is that we use these flawed visions and understandings to form our efforts to manipulate the world for our pleasure, as if we actually understood the physical world.